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Is the surge after the interest rate cut just a flash in the pan? GIC Chief Investment Officer in Singapore warns that inflation may come back soon.
Release Time：2024-09-20
The day after the Federal Reserve cut interest rates sharply, the latest unemployment data strengthened investors' confidence in the "soft landing" of the economy, and US stocks rose sharply. Overnight, the Dow broke through 42,000 points, and the S&P closed higher than 5,700 points, both hitting intraday and closing highs, while the Nasdaq once rose 3%.
However, Jeffrey Jaensubhakij, chief investment officer of GIC, Singapore's sovereign wealth fund, warned that the market boom after the Federal Reserve cut interest rates sharply on Wednesday may be just a flash in the pan, given the rising inflation risk. At the Asia Summit of milken Research Institute in 2024, he said:
At present, you can enjoy it and enjoy the current rise. But please be prepared, the labor markets in the United States, Europe and Japan are very tight, and the inflation risk may come back sooner than expected.
Jaensubhakij pointed out that as the US election approaches, politicians may launch unnecessary stimulus measures to win votes. He also mentioned that many companies supported by GIC need to borrow money and hope to see further interest rate cuts.
At the same time, Jaensubhakij further emphasized the huge difference between the current US stock market and the US debt market on the economic prospect: the bond market released the signal of "economic recession", while the stock market was transmitting the expectation of "economic acceleration". Only one of the two is correct. He said:
To some extent, the signal from the bond market is that interest rates need to fall as sharply as they are about to enter a recession. On the other hand, the stock market thinks that the economy will accelerate again and corporate profits will pick up. Only one of the two is right.
In fact, since the FOMC meeting of the Federal Reserve in July, the trend of US debt and US stocks has been "split" seriously, and they are in their own worlds.
As for the surge of US stocks on Thursday, some analysts believe that the data of US initial jobless claims released on the same day unexpectedly fell to a four-month low, which enhanced investors' confidence in the Fed's "soft landing" of the economy.
However, many analysts have questioned the continued rise of US stocks. Some commentators believe that Thursday's market performance reflects more the transactional response to Federal Reserve Chairman Powell's policy stance than the actual impact of monetary policy. Charlie Ashley, portfolio manager of Catalyst Funds, pointed out that the short-term trend of the market after the Federal Reserve announced a rate cut is usually unstable and irrational.
Tom Lee, one of the most optimistic bulls on Wall Street and the research director of Fundstrat Global Advisors, also believes that the Fed's interest rate cut cycle has laid the foundation for the strength of US stocks in the next one to three months. However, with the approach of the US presidential election in November, it is not entirely believed that US stocks will continue to rise, and there is still great uncertainty about the trend of US stocks.
Risk warning and exemption clause
The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.